Can a business making money (profit) also have cash flow problems ?
You bet your bottom dollar they can. Profit and Cash are two different concepts. Technically, if you’re maintaining your books on the cash basis instead of the accrual basis your profits and cash flow will match more closely, but they still may have some differences resulting from accounting for such items as inventories and equipment depreciation. Even a very profitable business can have cash flow problems which without corrective actions taken may have to close their doors. Of course a business continuously operating at a loss will more than likely reach a point where they are unable to pay their obligations and have to shut their doors. What’s the difference between cash flow and profit ? Profit is calculated by subtracting costs and expenses from sales and revenues. The recording of sales and their associated costs and expenses often do not coincide with when the resulting cash collected from sales and the cash spent for costs and expenses occurs. In a nutshell, we have a timing di
